COM100020 - Penalties: late delivery of returns: companies requiring special consideration

This subject is presented as follows

Companies outside the charge to CT

Companies in receivership, administration, administrative receivership or liquidation

Members clubs and voluntary associations

Companies struck off

Companies outside the charge to CT

A company that has been served with a notice, but is outside the charge to CT, for example a dormant (Word 28KB) company, is strictly liable to a penalty for failure to deliver a return.

However, in practice if the company was outside the charge to CT for the period for which a return is required, and a penalty has not already been charged 

• Do not charge a penalty. Use Function MAPD (Maintain Accounting Period Details) to amend the AP structure and set the dormant or Exempt AP status. COTAX then automatically sets the No Penalty Required signal

• Do not insist on a formal return

Similarly, if the company was outside the charge to CT for the period for which a return is required and a penalty has already been charged 

• Use Function MAPD to amend the AP structure and set the dormant or exempt AP status. This will give rise to an entry on Work List PENR (Penalties Requiring Review), with an attribute of ‘Company outside the charge to CT’
• Use Function PPEN (Prepare Penalty Determination) to discharge the penalty on appeal (where one has been made)

• Do not insist on a formal return

When the company has made no formal appeal against the penalty determination,treat the correspondence from the company as an appeal.

COTAX will not allow you to charge a penalty for a period that is recorded as, or included in a period of dormancy.

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Companies in receivership, administration, administrative receivership or liquidation

Companies that are in receivership, administration, administrative receivership or liquidation can incur penalties for failure to deliver a return on time. In practice HMRC is unlikely to receive payment towards outstanding penalty charges in many of these cases.

Administrations

The Enterprise Act 2002 (Word 30KB) made a number of changes to insolvency law and in particular to the law relating to administration. The Enterprise Act is to be brought into force by commencement orders made by Statutory Instrument.

Administrators are to be made ‘proper officers’ in legal terms from the effective date (Word 28KB), which makes them responsible for the tax affairs of the company.

This includes

• Delivery of returns for the period of administration

• Payment of tax for that period

Unlike the ‘old’ administration rules, Administrators are now liable to late-filing penalties if they fail to deliver a return on time for a period during which the company is in administration.

The start of a period of administration under the new rules means the

• End of the existing accounting period (AP) structure on the day before the administration start date

• Setting up of a new structure from the administration start date

The end of an administration period, under the new rules, triggers the end of the existing AP structure on that day, and the start of a new AP structure the day after.

Note: For further information on AP structures in new administration cases see subject ‘Administration Periods’ (COM1020) in section Company Accounting Periods in business area Account Periods.

A company in liquidation can subsequently go into administration. In these circumstances a new AP structure starts and the administrator takes over from the liquidator.

A company may then

• Go back into liquidation after the administration ends (effectively the liquidator takes over again)

• It may become solvent and be handed back to the directors

• Be sold on

• Be struck off

As for liquidators, administrators are able to make returns before the end of the final AP of the administration period.

To ensure that penalties are correctly dealt with for old and new administrations, you must check whether the administration period is subject to the provisions of The Enterprise Act 2002.

Further information on administrations is available in The Insolvency Manual.

The following approach in administration cases is recommended

For administration periods subject to The Enterprise Act 2002

• Use Function ACTP (Amend CT Payer Details) to enter the administration start date

• Use Function ACAP to enter capacitor details

For each AP ending before the Administration start date, setting the capacity role to ‘Administrator’ in Function ACAP also sets the ‘No Penalty Required’ signal for each AP for which a notice to deliver has been issued and no return made and no penalty determination issued.

Note: In these cases, penalties are chargeable on administrators during the period of administration and automatic penalty processing applies.

Companies in receivership or administrative receivership

Do not charge penalties for late returns. As soon as you know that a receiver has been appointed

• Use Function ACAP (Add / Amend Capacity Details) to enter capacitor details.

Setting the capacity role to ‘Receiver’ in Function ACAP also sets the ‘No Penalty Required’ signal for each AP for which a notice to deliver has been issued and no return made and no penalty determination issued.

Each AP where a penalty has been charged is entered on Work List PENR (Penalties Requiring Review) with the reason ‘Company in Administration / Receivership’. For further information on dealing with such cases see business area ‘Work Lists’.

The Debt Management office will deal with any unpaid penalties determined for periods before the receiver or administrator took office.

Companies continuing to trade after a receivership or administrative receivership

The capacity of ‘Receiver’ is removed from the record when a company continues to trade after receivership or administrative receivership. The ‘No Penalty Required’ signal remains on any existing APs for which it is set, but is not set on any future APs. This means that automatic penalty issue resumes for those future APs.

If the company remains active after the receivership has ended you must consider charging penalties for the period during which the receiver was in place.

Where you want to issue a penalty

• Use
• Function MPEN to unset the existing penalty inhibition signal. Note: Automatic penalty issue will then take place

If you charge penalties then accept a claim for reasonable excuse in such a case you must use

• Function PPEN to reduce the determination to Nil

• Function MPEN to set the penalty inhibition signal. Note: This will prevent automatic penalty issue

Companies in liquidation

Do not charge penalties for late returns covering periods up to the date of winding-up. As soon as you know that a liquidator has been appointed

• Use Function ACTP (Amend CT Payer Details) to enter the date of liquidation and set the Co Liqn - Mem Vol signal to ‘Y’ or ‘N’

Penalties charged are unlikely to be recovered if the company is in creditors voluntary or compulsory liquidation. If you set the Co Liqn - Mem Vol signal to ‘N’ COTAX will

• Set the ‘No Penalty Required’ signal for each AP ending before and after the date of liquidation, for which a notice to deliver has been issued and no return made

Companies in members’ voluntary liquidation are solvent and penalties should be charged if due. If you set the Co Liqn - Mem Vol signal to ‘Y’ COTAX will

• Automatically issue penalties unless you manually set an inhibition signal

Any unpaid penalties determined after the date of winding-up, in respect of failures before that date, will be dealt with by the Debt Management office and remitted, if appropriate.

Unpaid penalties determined before the date of winding-up are claimed in the liquidation as non-preferential debts. The Debt Management office will ask for advice from the office responsible for the case, when formulating the HMRC claim if the insolvency practitioner

• Sends an appeal against a penalty
• Disputes the amount of a penalty
• Makes a plea for mitigation

Penalties that have been determined and not appealed against should be pursued unless the determination has become excessive. (See S100(6) TMA 1970).

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Members clubs and voluntary associations

Members' clubs and voluntary associations are liable to penalties for failure to deliver a return.

COTAX will normally charge penalties for non-transitional periods automatically. However, you should give sympathetic consideration to a claim for reasonable excuse, when the treasurer or officer concerned

• Has no previous experience of CT matters

• Claims to have misunderstood the obligation imposed by the notice to deliver

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Companies struck off

You may occasionally need to reduce a penalty to nil after a company has been struck off. If the penalty was charged after the company was struck off, you can use Function PPEN to reduce the penalty to nil and set the ‘Suppress Printed Output?’ option to ‘Y’. This will ensure that no amended penalty output is issued to the struck off company.

Notes:

1.	The COTAX record will show the amended penalty despite output being suppressed
2.	Function DPEN will show ‘Supressed’ in red font and the date the output was suppressed
3.	You cannot reissue suppressed output using Function RPEN (Request Reissue Of Penalty Determination). If an AP has issued and suppressed determinations, Function RPEN shows the issued determination only

For a list of forms relevant to this subject, see COM100011.

For a list of functions to use in particular situations, see COM100012.

For legislation applying to this subject, see COM100013.